Online Vendors, Meet The 1099-K

Online sellers, we warned you about this in 2010. The Internal Revenue Service created the new 1099-K form as a way to keep closer tabs on those who sell items online, and the 2011 tax year is the first in which the form will apply.

Cash Money Life gives you the rundown on the form, which Amazon, PayPal and other services that deal with financial transactions will issue to customers.

You’ll only receive a 1099-K if you’ve participated in 200 transactions adding up to $20,000. It’s the IRS’s helpful way of reminding you to report income you might have otherwise overlooked. If you don’t receive a 1099-K because sell less frequently, you’ll still have to report your income.

**I’m no tax expert**
But most likely you’d be taxed the full amoubnt then be able to write off the fees paid (as well as the item cost) etc with proof.
IE Income: 10,000
Expense: Item Cost: 8000
Ebay Fees: 800
Paypal Fees: 800
Total Income: $400 so you’d pay on that
*Provided you had all your invoices in a row so you can prove to the IRS that e-bay and Paypal are worse than they are and that they should get into the Online auction business to solve our debt issues.

And, don’t forget, that if the IRS is going to treat the income as business income (and you should be doing the same!), that you have a right to deduct anything and everything that you buy in furtherance of that income generating activity, subject to existing IRS rules on business deductions, of course.

In other words, if you are running a little business selling widgets on eBay, don’t forget to deduct your business share of the internet bills, your business share of the computer you purchased (or better yet, purchase a computer that you use solely for business), vehicular mileage or business use percentage of actual costs (fuel, maintenance), shipping materials, office supplies purchased for the business, etc. The list goes on.

Both, probably. You’re taxed on the income, then you deduct your expenses, same as with anything else. And, like anything else, you’re probably supposed to track all of those details. I would guess that you don’t -have- to track them, but then, you’ll probably wish you had if you get audited. Better safe than sorry, and all that.

(If you have significant income, go see a CPA if you fall under this. I am one but I am speaking of generalities, so do not rely solely upon this)

Generally speaking, 1099 income is reported as gross business income, from which you can deduct the costs of that business – sales, fees, etc. Just make sure you have documentation of those items as the IRS will come down on your hard if you don’t.

Yeah, but the definition of gross income isn’t quite clear here. That is, if I sell $50,000 worth of goods through e-bay, and am charged $2000 in fees by e-bay over those transactions. Although I sold $50k of goods, I didn’t get $50k of revenue, I got $48k. The $2k of fees wasn’t an expense I paid out of my business, it’s money I never touched to begin with, as e-bay took it before it got to my hands.

I don’t want to be an ass, and this isn’t really directly related to the comment – Sorry Fast Eddie, but it bothers me that so many Americans, including journalists, are totally clueless about the most basic aspects of US federal taxes, but still have strong opinions on the topic (e.g. teaparty and other voters). Businesses (including individual sole-props) are taxed (federally) on NET PROFIT. That of course means that you would be taxed on the profit after deducting all costs including fees. If you did that much trading you could also deduct related expenses including depreciation on your computer, office supplies, etc. You would file Schedule C on your tax return where you would list total sales and total expenses.

I still remember the famous Joe the Plumber interview from 2008 where he clearly thought businesses were taxed on revenues (total sales) instead of profits and how 99% of the news media failed to realize it or point out his error and instead kept on replaying it.

From _The Hitchhiker’s Guide to the Galaxy_:
“Like the fact that the fabulously beautiful planet, Bethsellamin, is now so worried about the cumulative erosion caused by ten million visiting tourists a year, that any net imbalance between the amount you eat and the amount you excrete whilst on the planet, is surgically removed from your bodyweight when you leave. So every time you go to the lavatory there, it’s vitally important to get a receipt.”

That would require some major changes to the tax law, including raising capital gains taxes. Congress doesn’t have the stomach to do so. It’s a lot easier to go after the little guy and make minor changes, like eliminating certain qualified HSA/FSA expenses, that disproportionately hurt the middle and working classes.

Why would they go after him? He followed the law. Just because you’re jealous doesn’t make it a crime. If you have a problem, vote for someone else who will tax capital gains at a level you deem appropriate.

“If you don’t receive a 1099-K because sell less frequently, you’ll still have to report your income.”

Or not. I have sold numerous things online over the years and have never reported the income. It’s very dependent on how many sales you make and where you acquired and/or how you used the items you’re selling.

From the IRS website: If your online auction sales are the Internet equivalent of an occasional garage or yard sale, you generally do not have to report the sales.

Exactly. If it a business, no matter how informal, you owe. If it is a hobby, and in particular, you are selling your own stuff, which cost you more than you will get, no reporting necessary. You have to be aiming to make a profit for it to count.

You’re thinking of a standard 1099. If a business pays you (as a non-employee) at least $600 in a year, they have to provide you and the IRS a 1099.They can issue them for less. The VA gave me one for taking a $15 survey.

In theory if you are just selling some junk around the house, that’s not income 1099k or otherwise. What the IRS is looking for is professional sellers.

I would hope there is a place on the tax forms to indicate that the 1099k received was for household items sold (like a garage sale) and not a business.

More than likely if you are below a certain threshold the IRS won’t care. (the article indicated 20k).

Last year I had a tax situation that resulted in an automatic audit with additional info required (knew this in advance and the IRS couldn’t keep track of my documentation and I had to send it twice). I would not be surprised to see this in the case of 1099k forms as well.

So.. just to be clear. If I am just selling stuff I bought before and then never used, I am not required to report income from it? Sometimes I sell them below cost or above during an auction. Is it still income to be reported if it got sold above cost? What if I have no proof/basis for the original cost? Say, I bought the item 2 years ago and can’t remember how much it was?

Generally, you only have to report your sales if you made a profit on it. If you sold 20 items on eBay and netted $12 above your total cost, then you should *technically* report that as income. But it’s a lot like the state sales tax owed for online purchases — it doesn’t get reported very often and it’s almost impossible for anyone to track you down for it.

Something I don’t understand – this 1099Misc reports revenues, not income. Of course, income is taxable, but revenues are not. To get income, you subtract the cost of goods sold, plus a share of any fixed costs like rent, electricity and internet, for example. Is the IRS seriously asking everyone to do this accounting when they submit their taxes? In a small home business, costs like these are easily ‘tweaked’ in the taxpayers favor…

It’s not just for online vendors. Anyone who takes card payments and hits the 200/20,000 threshold will get a 1099-k. If you take cards online or in person, you’d better make sure your processor has correct tax information about you.

If the processor doesn’t have a seller’s tax ID, they may have to send money to the IRS as witholding, just like with income tax. Then the merchant has to file a return to request the refund.

Same old IRS fraud scheme. Notice they are saying FILER’s name, go look up the definition of what a FILER is in the relevant act, it’s a legal fiction they created and they are tricking you into contracting with it by signing that form and entering your name saying you’re a “FILER”. There are lots of rules the FILER has to abide by, one being paying a tax they put on it. This is how they legally encroach on your rights and squash them, good old contract fraud and tricking you into voluntarily giving them up as your human rights can only be voluntarily given up.

You will receive the 1099-K if any of the following happened:
1) You had 200 or more sales, regardless of source or total. You can make 200 sales for $5 each, and you will get a 1099-K.
2) You had $20k or more in sales, even if it was only two transactions
3) Both

The government hates not being in control of anything and everything. Inch by inch, regulation by over-reaching regulation, they are going to push to control as much of the Internet as possible. Whether through more taxes and regulation (oh why oh why did Amazon cave in concerning the Internet tax) or through laws like PIPA or SOPA (just because Congress got creamed in round one of this particular fight, don’t think they’ve given up: there’s more to come on this one)

One loophole in the law is that the limit is per processor. So if a seller sells $19,000 through Paypal, $19,000 through Amazon and $19,000 through a physical card reader at a retail store, the seller won’t get a form. They are clearly going after professional sellers here. The truth is that anything sold for a profit generates income, but as a practical matter, if you sell junk sitting around the house, no sane person is going to remember what that stuff costs. Unless you catch lightning in a bottle with some hot collectible, you presume you sold it for a loss and don’t say anything. I sold a big CD collection a year or so ago. I got about $5-$6 a disc after expenses, and I have no idea what I paid for each one. I just knew the going rate for a used CD at the time I accumulated them was around $8. That was not income.

The $20,000 limit might sound generous, but count on it never being adjusted for inflation, so that decades from now anyone who sells more than a few things gets one. I’m sure the $600 limit to get a 1099-MISC was a large sum of money when it was set, but now it is so small that anything that doesn’t count as petty cash will set it off.